QUARTERLY INFORMATION
STOCK PRICES
AND DIVIDENDS
(Rounded to the nearest 1/8)
Stock Prices Dividends Stock Prices Dividends
1993 High Low Paid 1992 High Low Paid
First Quarter $26-7/8 $23-5/8 $.11 First Quarter $20-1/2 $17-5/8 $.10
Second Quarter 25-7/8 21-1/2 .11 Second Quarter 20-1/8 17-3/8 .10
Third Quarter 26 22-1/2 .11 Third Quarter 22-1/8 18-1/8 .10
Fourth Quarter 27-3/4 21-3/4 .11 Fourth Quarter 23-5/8 21-1/8 .10
The number of stockholders of record as of December 31, 1993
was 4,012.
REVENUES, NET INCOME, AND EARNINGS PER SHARE
(In thousands except
per share data) First Second Third Fourth
1993
Revenues $127,295 $163,248 $151,808 $133,451
Net Income 5,867 19,071 11,688 7,843
Earnings per Share .16 .54 .33 .22
1992
Revenues $117,449 $150,204 $137,732 $122,281
Net Income 5,087 16,382 10,295 6,238
Earnings per Share .14 .47 .28 .18
1991
Revenues $104,631 $135,610 $124,516 $110,798
Net Income 4,022 13,612 8,632 5,233
Earnings per Share .11 .39 .24 .15
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS % CHANGE FROM PRIOR YEAR
SELECTED INDUSTRY SEGMENT DATA increase/(decrease)
(In thousands) 1993 1992 1991 1993 1992
REVENUES
Orkin $506,399 $461,971 $415,363 9.6% 11.2%
Rollins Protective 57,698 55,942 53,326 3.1 4.9
Other 11,705 9,753 6,866 20.0 42.0
$575,802 $527,666 $475,555 9.1 11.0
Operating Income
Orkin $70,720 $61,687 $51,389 14.6 20.0
Rollins Protective 5,896 5,398 4,956 9.2 8.9
Other 4,504 3,617 2,350 24.5 53.9
$81,120 $70,702 $58,695 14.7% 20.5%
GENERAL OPERATING COMMENTS
Rollins, Inc.'s consolidated revenues of $575.8 million were 9.1%
higher than in 1992. Operating income increased $10.4 million or
14.7% over the prior year. Operating margins improved 5.2% over
1992 compared to 1992's improvement over 1991 of 8.9%.
Both the cost of services provided and sales, general and
administrative expenses improved as a percentage of revenues in
each of the past two years. This strong financial performance was a
result of our continued emphasis on
13
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
customer service, improved
productivity, employee training, efficient sales and marketing
programs, and improved cost control.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes". The cumulative effect of the change in the method of
accounting for income taxes attributable to years prior to 1993 was
not material. Prior years' financial statements have not been
restated to reflect the provisions of SFAS 109.
The Omnibus Budget Reconciliation Act of 1993, which
retroactively raised the 1993 statutory federal tax rate from 34% to
35% for the Company, reduced earnings approximately $.01 per share
for the year. Including the 1% federal statutory tax rate increase,
the estimated effective income tax rate was 39.0% for 1993 versus
39.5% for both 1992 and 1991. The reduction in our overall effective
tax rate was attributable to our active pursuit of current tax
strategies.
Operating profit margins for the Orkin business segment
increased 4.5% over the prior year, compared to a 8.1% margin
improvement from 1992 over 1991. Rollins Protective Services'
operating margins increased 6.3% over 1992. This compares to a
3.2% margin improvement from 1992 over 1991. Detailed segment
information follows.
ORKIN 1993 VERSUS 1992
The Orkin business segment had 1993 revenues and operating
income increases of 9.6% and 14.6%, respectively, over the results
achieved in 1992. Orkin Pest Control's revenue increases were the
result of our continued emphasis on providing premium services,
improved customer service, opening new branches, an increased
number of customers, and the successful introduction of new
services. Marketing programs included an effective, highly focused
national advertising campaign, the money-back guarantee expanded
to termite control, and our new agribusiness service. Operating
income benefited from increased employee productivity, further
improvements in the control of operating costs, and revenue growth
resulting from new customers and new services. We expect the 1994
operating results of the termite and pest control business to exceed
those of 1993 by continuing the growth of our customer base in both
new and existing markets through acquisitions and cross-marketing
efforts between divisions.
Orkin Plantscaping's operating results continued to be impacted
by slowdowns in commercial real estate construction. Revenues
increased primarily due to expanded Holiday, Exterior Color, and
National Accounts Programs. Cross-marketing efforts by Orkin Pest
Control and Orkin Plantscaping have enabled Plantscaping to
increase its national corporate customer list. During 1993,
Plantscaping continued to improve operational efficiencies, enhance
service delivery, and provide internal standardization among its nine
major markets. We expect the 1994 operating results to benefit
from the continued emphasis on operational improvements, enhanced
service delivery, expense control and employee training.
Orkin Lawn Care has sustained its turnaround trend with improved
sales, customer retention, better cost controls, and employee
productivity. Lawn Care introduced new services during 1993 which
increased revenues and operating income. Lawn Care has planned
additional enhancements in 1994, benefiting from a more seasoned
management staff, new marketing programs, further increased
employee productivity and more efficient execution of operational
programs.
ORKIN 1992 VERSUS 1991
The Orkin business segment had 1992 revenues and operating
income increases of 11.2% and 20.0%, respectively, over the results
achieved in 1991. Orkin Pest Control's revenue increases were the
result of opening new branches and the continued expansion through
acquisitions in key markets. Also, revenue gains related to an
increased number of customers, improved customer retention, higher
prices, and more effective marketing programs. Marketing programs
included more efficient advertising and the offering of convenient
financing available from our in-house finance company. Operating
income improvements were attained through cost containment,
productivity gains, and lower employee turnover.
Orkin Plantscaping entered three new growth markets in 1992,
expanding its operations to nine major markets and becoming the
industry's second largest company. During 1992, the financial
results of our Orkin Lawn Care Operation had significant
improvement over the prior year. Some branch operations, primarily
in the Northeast, were either closed, sold, or merged during the
fourth quarter of 1992 in a consolidation program in order to
concentrate our resources on maximizing revenue and profit
opportunities in growth locations. The downsizing did not have a
material impact on the financial statements.
ROLLINS PROTECTIVE SERVICES (RPS) 1993 VERSUS 1992
RPS had 1993 revenues and operating income increases of 3.1%
and 9.2%, respectively, over the results achieved in 1992.
Operational improvements were reported by the
14
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
RPS division in 1993
primarily due to improvements made in the third and fourth quarters
with more effective sales programs and a concentration of service
delivery resulting in improved customer retention. Revenue
increases were also attributed to the opening of two new branches
and marketing new credit plans offered by our in-house finance
company in the second and third quarters. RPS's operating income
benefited from better trained employees, increased sales and
service productivity, and management's efforts to reduce cost and
control inventory levels. RPS is positioned for a successful 1994
with the continued focus on its residential business and commercial
security markets and our expansion plans to add two new branches in
existing geographical markets.
RPS 1992 VERSUS 1991
RPS had 1992 revenues and operating income increases of 4.9%
and 8.9%, respectively over the results achieved in 1991. During
1992, residential customer sales were affected somewhat by the
continued economic recession; however, revenues from new
commercial customers increased, making this the fastest growing
part of the Company's security business. Operating income benefited
from improved productivity in both sales and service. This was
attributable to increased training, lower employee turnover, and
cost controls, in addition to our revenue increase. During 1992, RPS
entered a new market with the opening of a branch in Phoenix,
Arizona. To accommodate the growing commercial business, RPS
opened several commercial operating units at current branch
locations in 1992.
FINANCIAL CONDITION % CHANGE FORM PRIOR YEAR
increase/(decrease)
(Dollars in thousands) 1993 1992 1991 1993 1992
Cash and Short-Term Investments $18,102 $20,061 $41,230
Marketable Securities 50,991 30,657 --
$ 69,093 $50,718 $41,230 36.2% 23.0%
Working Capital $117,528 $89,944 $64,741 30.7 38.9
Current Ratio 2.8 2.4 2.1 16.7 14.3
Cash Provided From Operations $40,034 $33,319 $31,987 20.2% 4.2%
Rollins, Inc.'s financial position at December 31, 1993 remained
solid. The Company's operations have historically provided a strong
positive cash flow which represents the Company's principal source
of funds. Current assets are stated at cost which approximates fair
value.
During 1993, the Company invested $8.1 million in capital
expenditures and acquisitions. Also, $15.7 million were paid out in
cash dividends. The Company has been able and continues to expect
to fund these cash requirements out of operations. The Company had
no long-term debt during the three year period ended December 31,
1993.
Net trade receivables increased $20.5 million or 30.7% at
December 31, 1993 compared with the prior year. Trade receivables
include installment receivables amounts which are due subsequent
to one year from the balance sheet date. These amounts were
approximately $28.7 million and $21.5 million at the end of 1993 and
1992, respectively. (Delinquency statistics, as a percentage of total
receivables, have improved over the prior year). The increase in
receivables, was attributed to the expansion of Orkin's financed
termite marketing program and the increased average contract
length. These factors, combined with improved revenues and market
share, created substantial growth in our receivables compared to
1992.
The weighted-average discount rate used in determining the
projected benefit obligation of the Company's pension plan was
decreased from 8.5% in 1991 and 1992 to 8.0% in 1993 to more
closely approximate rates on high-quality, long-term obligations.
The change in the weighted-average discount rate will have no
material effect on the Company's financial position or results of
operations.
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity Securities."
The Company will adopt the new method of accounting for
marketable securities in the first quarter of 1994. The adoption of
SFAS 115 will not have a material impact on the Company's
financial position or results of operations.
15
STATEMENTS OF FINANCIAL POSITION
Rollins, Inc. and Subsidiaries
At December 31, (In thousands except share data) 1993 1992
ASSETS Cash and Short-Term Investments $ 18,102 $ 20,061
Marketable Securities 50,991 30,657
Trade Receivables, Net 87,518 66,980
Materials and Supplies 15,829 18,253
Deferred Income Taxes 4,980 9,310
Other Current Assets 7,112 6,808
Current Assets 184,532 152,069
Equipment and Property, Net 28,890 28,838
Intangible Assets 42,171 42,283
Other Assets 11,601 13,101
Total Assets $267,194 $236,291
LIABILITIES Accounts Payable $ 12,279 $ 12,028
Accrued Insurance Expenses 13,600 14,022
Accrued Payroll 15,519 15,043
Unearned Revenue 12,854 9,507
Other Expenses 12,752 11,525
Current Liabilities 67,004 62,125
Deferred Income Taxes 12,983 21,211
Long-Term Accrued Liabilities 26,699 23,056
Total Liabilities 106,686 106,392
Commitments and Contingencies
STOCKHOLDERS' EQUITY Common Stock, par value $1 per share; authorized
99,500,000 shares; 41,431,814 shares issued 41,432 41,432
Earnings Retained 171,862 141,999
213,294 183,431
Less -- Common Stock In Treasury, At Cost,
5,758,619 shares in 1993; 5,840,109 shares in 1992 52,786 53,532
Total Stockholders' Equity 160,508 129,899
Total Liabilities and Stockholders' Equity $267,194 $236,291
The accompanying notes are an integral part of these statements.
16
STATEMENTS OF Income
Rollins, Inc. and Subsidiaries
Years Ended December 31,
(In thousands except per share data) 1993 1992 1991
REVENUES
Customer Services $575,802 $527,666 $475,555
COSTS AND EXPENSES
Cost of Services Provided 293,499 271,518 247,994
Sales, General and Administrative Expenses 203,483 187,238 169,825
Depreciation and Amortization 8,310 7,966 7,806
Interest Income (2,390) (1,870) (2,134)
502,902 464,852 423,491
INCOME BEFORE INCOME TAXES 72,900 62,814 52,064
PROVISION (CREDIT) FOR INCOME TAXES:
Current 30,339 25,317 21,431
Deferred (1,908) (505) (866)
28,431 24,812 20,565
NET INCOME $ 44,469 $38,002 $ 31,499
EARNINGS PER SHARE $ 1.25 $ 1.07 $ .89
AVERAGE SHARES OUTSTANDING 35,638 35,569 35,510
STATEMENTS OF EARNINGS RETAINED
Rollins, Inc. and Subsidiaries
Years Ended December 31,
(In thousands except per share data) 1993 1992 1991
Balance at Beginning of Year $141,999 $131,602 $113,678
Net Income 44,469 38,002 31,499
Cash Dividends (15,680) (14,226) (13,731)
Employee Benefit Plans 1,074 445 156
Adjustment for Three-for-Two Stock Split -- (13,824) --
Balance at End of Year $171,862 $141,999 $131,602
DIVIDENDS PER SHARE $ .44 $ .40 $ .39
The accompanying notes are an integral part of these statements.
17
STATEMENTS OF CASH FLOWS
Rollins, Inc. and Subsidiaries
Years Ended December 31, (In thousands) 1993 1992 1991
OPERATING Net Income $ 44,469 $38,002 $ 31,499
ACTIVITIES Noncash Charges (Credits) to Earnings:
Depreciation and Amortization 8,310 7,966 7,806
Deferred Income Taxes (1,908) (505) (866)
Other, Net 3,152 3,292 2,705
(Increase) Decrease in:
Trade Receivables (20,474) (13,966) (14,731)
Materials and Supplies 1,477 (2,643) (2,086)
Other Current Assets 3,473 (3,821) (174)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 924 3,597 3,582
Unearned Revenue 3,347 1,009 2,621
Non-Current Deferred Income Taxes (5,767) 753 4,078
Long-Term Accrued Liabilities 3,643 837 (1,660)
Other Non-Current Assets (612) (1,202) (787)
Net Cash Provided by Operating Activities 40,034 33,319 31,987
INVESTING Purchases of Equipment and Property (7,690) (6,645) (8,366)
ACTIVITIES Net Cash Used for Acquisition of Companies (397) (4,299) (1,500)
Purchases of Marketable Securities (20,334) (30,657) --
Proceeds from Sale of
Equipment and Property 288 339 357
Net Cash Used in Investing Activities (28,133) (41,262) (9,509)
FINANCING Dividends Paid (15,680) (14,226) (13,731)
ACTIVITIES Treasury Stock Issued to Benefit Plans 1,820 1,000 651
Net Cash Used in Financing Activities (13,860) (13,226) (13,080)
Net Increase (Decrease) in Cash and
Short-Term Investments (1,959) (21,169) 9,398
Cash and Short-Term Investments
at Beginning of Year 20,061 41,230 31,832
Cash and Short-Term Investments
at End of Year $18,102 $ 20,061 $41,230
The accompanying notes are an integral part of these statements.
18
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1993, 1992, and 1991, Rollins, Inc. and Subsidiaries
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial
statements include the accounts of Rollins, Inc. (the Company) and
its subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Revenues - Revenue is recognized at the time services are
performed. Unearned time charges are recognized under methods
which will result in the Company realizing a constant rate of return
on the related outstanding installment receivables.
Cash and Short-Term Investments - The Company considers all
investments with a maturity of three months or less to be cash
equivalents. Short-term investments are stated at cost which
approximates fair value.
Marketable Securities - Marketable securities, which are all fixed
income securities, are carried at cost which approximates fair
value. The fair value of marketable securities are based on quoted
market prices.
Materials and Supplies - Materials and supplies are recorded at
the lower of cost (first-in, first-out basis) or market.
Equipment and Property - Depreciation and amortization are
provided principally on a straight-line basis over the estimated
useful lives of the related assets. Annual provisions for depreciation
are computed using the following asset lives: buildings, 10 to 40
years; and furniture, fixtures, and operating equipment, 3 to 10
years. The cost of assets retired or otherwise disposed of and the
related accumulated depreciation and amortization are eliminated
from the accounts in the year of disposal with the resulting gain or
loss credited or charged to income. Expenditures for additions,
major renewals and betterments are capitalized and expenditures
for maintenance and repairs are expensed as incurred.
Insurance - The Company self-insures up to specified limits
certain risks related to general liability, workers' compensation and
vehicle liability. The estimated costs of existing and future claims
under the self-insurance program are accrued based upon historical
trends as incidents occur, whether reported or unreported (although
actual settlement of the claims may not be made until future
periods) and may be subsequently revised based on developments
relating to such claims. The noncurrent portion of these estimated
outstanding claims
comprises most of the long-term accrued liabilities balance shown
on the Statements of Financial Position.
Income Taxes - Effective January 1, 1993, the Company
adopted Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes". SFAS 109 requires recognition
of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference
between the financial and tax basis using enacted tax rates in effect
for the year in which the differences are expected to reverse. These
differences are more inclusive in nature than
differences determined under previously applicable accounting
principles.
Common Stock - Earnings per share is computed on the basis of
weighted-average shares outstanding. Stock options outstanding do
not have a significant dilutive effect.
Reclassifications - Certain prior year amounts have been
reclassified to conform with the 1993 presentation.
2. TRADE RECEIVABLES
Trade receivables, net, at December 31, 1993, totalling
$87,518,000 and at December 31, 1992, totalling $66,980,000 are
net of allowances for doubtful accounts of $4,548,000 and
$2,948,000, respectively, and unearned time charges of $172,000
and $1,165,000, respectively. Trade receivables include installment
receivables amounts which are due subsequent to one year from the
balance sheet dates. These amounts were approximately
$28,737,000 and $21,496,000 at the end of 1993 and 1992,
respectively. The carrying amount of installment receivables
approximates fair value because the interest rates approximate
market rates.
19
NOTES TO FINANCIAL STATEMENTS (continued)
Years ended December 31, 1993, 1992, and 1991, Rollins, Inc. and Subsidiaries
3. EQUIPMENT AND PROPERTY
Equipment and property are presented at cost less accumulated
depreciation and are detailed as follows:
(In thousands) 1993 1992
Buildings $ 8,666 $ 8,547
Operating equipment 55,932 53,844
Furniture and fixtures 11,078 10,569
75,676 72,960
Less - accumulated depreciation 49,881 47,217
25,795 25,743
Land 3,095 3,095
$ 28,890 $ 28,838
4. INTANGIBLE ASSETS
Intangible assets represent goodwill arising from acquisitions
and are stated at cost less accumulated amortization. Intangibles
which arose from acquisitions prior to November, 1970 are not being
amortized for financial statement purposes, since, in the opinion of
management, there has been no decrease in the value of the acquired
businesses. Intangibles arising from acquisitions since November,
1970 are being amortized over forty years.
5. INCOME TAXES
A reconciliation between taxes computed at the statutory rate on
the income before income taxes and the provision for income taxes
is as follows:
(In thousands) 1993 1992 1991
Federal income taxes
at statutory rate $25,515 $21,357 $17,702
State income taxes
(net of federal benefit) 3,137 3,148 2,683
Other (221) 307 180
$28,431 $24,812 $20,565
The provision for income taxes was based on a 39.0%, 39.5%, and
39.5% estimated effective income tax rate on income before income
taxes for the years ended December 31, 1993, 1992, and 1991,
respectively. The effective income tax rate differs from the annual
federal statutory tax rate primarily because of state income taxes.
The deferred income tax credits for the three year
period ended December 31, 1993 are due to differences
between financial and income tax reporting. A summary of those
deferred income tax debits (credits) is as follows:
(In thousands) 1993 1992 1991
Self-insurance $ 1,761 $1,752 $ 629
Safe harbor lease (1,274) (1,085) (959)
Depreciation (593) (544) (472)
Other (1,802) (628) (64)
$ (1,908) $ (505) $(866)
Income taxes remitted were $25,796,000, $24,447,000 and
$17,520,000 for the years ended December 31, 1993, 1992, and
1991, respectively.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes". The cumulative effect of the change in the method of
accounting for income taxes attributable to years prior to 1993 was
not material. Prior years' financial statements have not been
restated to reflect the provisions of SFAS 109.
The tax effect of the temporary differences which comprise the
current and non-current deferred income tax amounts on the balance
sheet at December 31, 1993 is as follows:
(In thousands) Debits (Credits)
Deferred Tax Assets (Liabilities):
Self-insurance $ 13,551
Safe harbor lease (17,268)
Accruals (5,685)
Payroll and related accruals 1,571
Other (172)
$ (8,003)
During 1982, the Company entered into a twenty-year "Safe
Harbor" lease agreement under the Economic Recovery Tax Act (Act)
of 1981 for the purchase of federal income tax benefits. The
Company has invested $29,096,000 in the lease. The investment in
tax benefits from the safe harbor lease agreement has been
allocated
between investment tax credit benefits and tax
deduction timing benefits. Such investment amount has been
reflected as a reduction in non-current deferred income taxes.
Amortization of timing benefits into expense is computed at a
constant rate of return.
20
NOTES TO FINANCIAL STATEMENTS (continued)
Years ended December 31, 1993, 1992, and 1991, Rollins, Inc. and Subsidiaries
6. COMMITMENTS AND CONTINGENCIES
Minimum annual rentals for non-cancelable leases with terms in
excess of one year, in effect at December 31, 1993, are summarized
as follows:
(In thousands) Real Estate Vehicles Other Total
1994 $ 9,239 $ 8,099 $1,122 $18,460
1995 8,838 4,668 740 14,246
1996 7,524 1,861 383 9,768
1997 6,894 534 68 7,496
1998 4,523 -- 6 4,529
1999-2003 20,624 -- -- 20,624
2004-2008 13,441 -- -- 13,441
2009-2013 8,022 -- -- 8,022
$79,105 $15,162 $2,319 $96,586
Total rental expense charged to operations was $24,274,000,
$23,384,000, and $22,157,000 for the years ended December 31,
1993, 1992, and 1991, respectively.
In the normal course of business, the Company is a defendant in a
number of lawsuits which allege that
plaintiffs have been damaged as a result of the rendering of services
by Company personnel and equipment. The Company is actively
contesting these actions. It is the opinion of Management that the
outcome of these actions will not have a material adverse effect on
the Company's financial position, results of operations, or liquidity.
7. BUSINESS SEGMENT INFORMATION
The Company operates two major business segments. Certain
information with respect to the Company's business segments is as
follows:
(In thousands) 1993 1992 1991
REVENUES
Orkin $ 506,399 $ 461,971 $ 415,363
Rollins Protective 57,698 55,942 53,326
Other businesses 11,705 9,753 6,866
$ 575,802 $ 527,666 $ 475,555
OPERATING INCOME
Orkin $ 70,720 $ 61,687 $ 51,389
Rollins Protective 5,896 5,398 4,956
Other businesses 4,504 3,617 2,350
81,120 70,702 58,695
OTHER
Corporate expenses, net (10,610) (9,758) (8,765)
Interest income 2,390 1,870 2,134
Income before
income taxes $ 72,900 $ 62,814 $ 52,064
IDENTIFIABLE ASSETS
Orkin $ 161,850 $ 145,115 $ 127,533
Rollins Protective 18,420 18,535 16,778
Other 86,924 72,641 60,266
$ 267,194 $ 236,291 $204,577
DEPRECIATION AND AMORTIZATION EXPENSE
Orkin $ 6,992 $ 6,163 $ 5,926
Rollins Protective 433 1,076 1,146
Other 885 727 734
$ 8,310 $ 7,966 $ 7,806
CAPITAL EXPENDITURES
Orkin $ 5,919 $ 5,320 $ 7,607
Rollins Protective 413 349 368
Other 1,395 1,373 561
$ 7,727 $ 7,042 $ 8,536
21
NOTES TO FINANCIAL STATEMENTS (continued)
Years ended December 31, 1993, 1992, and 1991, Rollins, Inc. and Subsidiaries
8. EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory tax-qualified defined
benefit retirement plan covering all employees meeting certain age
and service requirements. The qualified plan provides benefits based
on the average compensation for the highest five years during the
last ten years of credited service (as defined) in which
compensation was received, and the average anticipated Social
Security covered earnings. The Company funds the Plan with at least
the minimum amount required by ERISA.
The Company's net pension expense (benefit) for the past three
years is summarized as follows:
(In thousands) 1993 1992 1991
Service cost - benefits
earned during the period $ 2,345 $ 2,057 $ 1,670
Interest cost on projected
benefit obligation 3,248 2,827 2,385
Actual return on plan assets (4,218) (4,976) (7,878)
Net amortization
of transition asset (1,099) (1,099) (1,099)
Deferral of net
investment gain 227 1,255 4,390
Net pension expense (benefit) $ 503 $ 64 $ (532)
The funded status of the Plan is summarized as follows at
December 31:
(In thousands) 1993 1992
Actuarial present value of benefit obligations:
Accumulated benefit obligation
including vested benefits of
$31,265 in 1993 and
$25,471 in 1992 $ (33,989) $(27,597)
Effect of projected future
compensation levels (8,468) (7,588)
Projected benefit obligation (42,457) (35,185)
Plan assets at fair value 48,153 45,665
Plan assets in excess of projected obligation 5,696 10,480
Unrecognized net (gain) loss 1,574 (1,609)
Unrecognized net asset at transition
being amortized over 10 years (4,026) (5,177)
Unrecognized prior service cost 264 316
Prepaid pension expense
included in other assets $ 3,508 $ 4,010
At December 31, 1993, the Plan's assets were comprised of
listed common stocks and U. S. Government and corporate securities.
Included in the assets of the Plan were shares of Rollins common
stock with a market value of $8,249,000. The expected long-term
rate of return on plan assets was 9.5% in 1993, 1992, and 1991. The
weighted-average discount rate used in determining the projected
benefit obligation was decreased from 8.5% in 1991 and 1992 to
8.0% in 1993 to more closely approximate rates on high-quality,
long-term obligations. The assumed growth rate of compensation
decreased from 6.0% in 1991 and 1992 to 5.5% in 1993.
The Company sponsors a deferred compensation 401(k) plan that
is available to substantially all employees with six months of
service. The charges to expense for the Company match were
$1,379,000 in 1993, $1,320,000 in 1992, and $1,033,000 in 1991.
22
NOTES TO FINANCIAL STATEMENTS (continued)
Years ended December 31, 1993, 1992, and 1991, Rollins, Inc. and Subsidiaries
The Company has an employee incentive stock option plan (1984
Plan), adopted in October, 1984, under which 1,200,000 shares of
common stock are subject to options to be granted. The options are
granted at the fair market value of the shares on the date of the
grant and expire ten years from the date of the grant, if not
exercised. On January 25, 1994, the Board of Directors approved a
new long-term compensation program consisting of various stock
incentive programs. The new plan is subject to stockholders'
approval at the annual stockholders' meeting on April 26, 1994.
Option transactions during the last three years for the 1984 Plan
are summarized as follows:
(Number of shares) 1993 1992 1991
Outstanding at
January 1, 117,781 129,915 109,988
Granted 9,900 9,900 36,150
Exercised (9,965) (17,715) (15,323)
Cancelled (3,510) ( 4,319) (900)
Outstanding at
December 31, 114,206 117,781 129,915
Exercisable at
December 31, 70,976 68,671 72,135
Option price ranges per share:
Granted $ 25.50 $ 19.08 $ 13.25
Exercised 5.92-13.25 5.92-13.25 5.92-12.25
Cancelled 12.58-25.50 5.92-13.25 11.75
Outstanding 5.92-25.50 5.92-19.08 5.92-13.25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders of Rollins, Inc.:
We have audited the accompanying statements of financial position
of Rollins, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1993 and 1992 and the related statements of income,
earnings retained and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Rollins, Inc.
and subsidiaries as of December 31, 1993 and 1992 and the results
of their operations and their cash flows for each of the three years
in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
Arthur Andersen & Co.
Atlanta, Georgia
February 14, 1994
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FIVE-YEAR FINANCIAL SUMMARY
Rollins, Inc. and Subsidiaries
1993 1992 1991 1990 1989
OPERATIONS SUMMARY
(In thousands except
per share data) Revenues $ 575,802 $ 527,666 $ 475,555 $ 436,398 $ 402,324
Cost of Services Provided 293,499 271,518 247,994 230,107 211,604
Sales, General and Administrative 203,483 187,238 169,825 155,904 146,658
Depreciation and Amortization 8,310 7,966 7,806 7,482 7,509
Interest Income (2,390) (1,870) (2,134) (2,460) (2,215)
Income Before Income Taxes 72,900 62,814 52,064 45,365 38,768
Income Taxes 28,431 24,812 20,565 17,919 15,236
Net Income $ 44,469 $ 38,002 $ 31,499 $ 27,446 $ 23,532
Earnings per Share $ 1.25 $ 1.07 $ .89 $ .77 $ .67
Dividends per Share $ .44 $ .40 $ .39 $ .37 $ .36
Cash Provided from Operations $ 40,034 $ 33,319 $ 31,987 $ 36,350 $ 31,955
Capital Expenditures $ 7,727 $ 7,042 $ 8,536 $ 8,929 $ 9,747
Total Assets $ 267,194 $ 236,291 $ 204,577 $ 177,961 $ 160,121
Long-Term Debt -- -- -- -- --
Stockholders' Equity $ 160,508 $ 129,899 $ 105,137 $ 86,718 $ 72,228
SELECTED RATIO ANALYSIS
(As a % of revenues Cost of Services Provided 51.0% 51.5% 52.1% 52.7% 52.6%
except return on Sales, General and Administrative 35.3 35.5 35.7 35.7 36.5
average equity) Depreciation and Amortization 1.4 1.5 1.6 1.7 1.9
Interest Income (0.4) (0.4) (0.4) (0.6) (0.6)
Income Before Income Taxes 12.7 11.9 11.0 10.5 9.6
Net Income 7.7 7.2 6.6 6.3 5.8
Return on Average Equity 30.6 32.3 32.8 34.5 35.3
SHARES OUTSTANDING
(In thousands) Average 35,638 35,569 35,510 35,465 35,438
At Year End 35,673 35,592 35,532 35,478 35,453
GROWTH RATES
AVERAGE
1993 3 Years 5 Years
Revenues 9.1% 9.7% 8.6%
Net Income 17.0 17.5 12.9
Earnings per Share 16.8 17.5 12.7
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DIRECTORS, OFFICERS AND STOCKHOLDER INFORMATION
DIRECTORS
JOHN W. ROLLINS
Chairman of the Board and Chief Executive Officer of Rollins Truck
Leasing Corp. (vehicle leasing and transportation), Chairman of the
Board and Chief Executive Officer of Rollins Environmental Services,
Inc. (hazardous waste treatment
and disposal)
HENRY B. TIPPIE (Dagger)
Chairman of the Board and Chief Executive Officer of Tippie
Communications, Inc. (radio stations)
R. RANDALL ROLLINS *
Chairman of the Board and Chief Executive Officer of Rollins, Inc.,
Chairman of the Board and Chief Executive Officer of RPC Energy
Services, Inc. (oil and gas field services, and boat manufacturing)
WILTON LOONEY (dagger)
Honorary Chairman of the Board of Genuine Parts Company
(automotive parts distributor)
JAMES B. WILLIAMS (dagger)
Chairman, Chief Executive Officer, and Director of SunTrust Banks,
Inc. (bank holding company)
GARY W. ROLLINS *
President and Chief Operating Officer of Rollins, Inc.
BILL J. DISMUKE
President of Edwards Baking Company
* Member of the Executive Committee
(dagger) Member of the Audit and Compensation Committees
OFFICERS
R. RANDALL ROLLINS
Chairman of the Board and Chief Executive Officer
GARY W. ROLLINS
President and Chief Operating Officer
GENE L. SMITH
Chief Financial Officer, Secretary, and Treasurer
STOCKHOLDER INFORMATION
ANNUAL MEETING:
The Annual Meeting of the Stockholders will be held at 11:30 a.m.
Tuesday, April 26, 1994, at the Company's corporate offices in
Atlanta, Georgia.
TRANSFER AGENT AND REGISTRAR:
For inquiries related to stock certificates, including changes of
address, lost certificates, dividends, and tax forms, please contact:
Trust Company Bank
Corporate Trust Department
P. O. Box 4625
Atlanta, Georgia 30302
Telephone: 1-800-568-3476
STOCK EXCHANGE INFORMATION:
The Common Stock of the Company is listed on the New York and
Pacific Stock Exchanges and traded on the Philadelphia, Chicago and
Boston Exchanges under the symbol ROL.
DIVIDEND REINVESTMENT PLAN:
This Plan provides a simple, convenient, and inexpensive way for
stockholders to invest cash dividends in additional Rollins, Inc.
shares. For further information, contact Trust Company Bank at the
above address or write to the Secretary at the Company's mailing
address.
FORM 10-K:
The Company's annual report on Form 10-K to the Securities and
Exchange Commission provides certain additional information.
Stockholders may obtain a copy by contacting the Secretary at the
Company's mailing address.
CORPORATE OFFICES:
Rollins, Inc.
2170 Piedmont Road, N.E.
Atlanta, Georgia 30324
MAILING ADDRESS:
Rollins, Inc.
P. O. Box 647
Atlanta, Georgia 30301
TELEPHONE:
(404) 888-2000
(Recycled logo) Printed on Recycled paper
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